US debt crisis: Republicans abandon vote as panic grows

Republican leaders have abandoned a vote on a plan to raise the debt limit, in a major setback for the authority of Speaker John Boehner who failed to persuade members of his party's Tea Party wing to support him.

Mr Boehner and other party leaders had delayed the vote for more than four hours as they tried to twist arms, but gave up at around 10pm when it became clear they could not muster the necessary 217 votes from the 240 members in the Republican caucus.

Congress now only has four days to meet a deadline set by Timothy Geithner, the Treasury Secretary, to raise the national borrowing limit or risk defaulting on loans or failing to make millions of routine payments to Americans.

Mr Boehner was hopeful of holding the vote on Friday, but there are now serious doubts about whether or not there is time to reach a deal before Aug 2. Any bill passed in the House must also be approved by the Senate and President Barack Obama. Both Democratic leaders and the White House have said they cannot tolerate Mr Boehner's bill.

Congressional aides were busy working on a "Plan C" into the early hours, which could include a short term extension of 30 or 60 days, or a bill that would allow the president to extend the debt ceiling unilaterally.

The key stumbling block at this point, beyond the unexpected delay, is the insistence of the Republican-controlled House that raising the debt ceiling should be contingent upon returning to the issue early next year.

That would thrust the heated issue into the midst of the 2012 election campaign. Mr Obama, who faces re-election, has insisted that the ceiling be increased sufficiently to push the issue beyond the 2012 vote.

Fears that the deadlock won't be broken forced global stock markets down yet again. US stocks have fallen all week, while European markets were down and Japan's Nikkei average fell almost 1.5 per cent.

Some Republicans, such as presidential hopeful Michele Bachmann, have accused the administration of scare tactics over the consequences of not raising the debt ceiling. She said Mr Geithner had constantly changed the deadline.

She called on Mr Obama to "exercise the leadership he has failed to show so far".

"John Boehner has produced not one but two plans. It is time for the president to produce a plan," said the Minnesota congressman, who did not support the Speaker's bill.